Liquid Financial Securities Compete for Investors' Dollars

Posted on September 15, 2014

Canterbury Portfolio Thermostat-Weekly Update- 9/15/14

Market State 2 (46 trading days) - Long-term: Bullish; Short-term: Neutral. Canterbury Volatility Index is at CVI =
41 (Bullish): Volatility remains at near record low levels. Volatility remained about the same as the previous week.
The CVI index declined 1 point which is good considering the S&P 500 declined a little over 1% for the week.
Meaning, that volatility normally increases when a market or security goes down.

Overbought/Oversold

"Oscillator” is currently 80% oversold (Bullish/Neutral). The market was extremely overbought (moved too
high/too fast) a couple weeks ago. At that time, the reading had reached an extreme level of 99% overbought. A week
ago, the indicator was 89% overbought when the S&P 500 hit a new high. It only took a little over a week and a 1%
decline to shift all the way back to 80% oversold (neutral/bullish).

Market Comment:

Most equity markets were overdue for a small pullback. The previous Weekly Comment said: It is always important to
look beyond the obvious when analyzing the current state of the market environment. The Dow sold off 150 points and
the S&P 500 was down 22 points last week. The small decline, in the two major US equity indexes, was just a
little blip on a price chart. On the other hand, the more broadly represented S&P 1500 and Russell 2000 indexes
are showing a little different picture. For example, 18% of the 1500 holdings are down -20% or more. The Russell 2000
is actually down -0.2 year to date. These declines are not significant but a deeper look into the markets does help
expose why there is a wide range of returns among the various equity indexes.

The Alternative to Global Equities Group:

Markets compete for investors’ dollars. When money begins to flow out of one asset class, it will flow into
another. For example, when investors begin to sell some of the ETFs that represent global equities, it will result in
a capital inflow into various “alternative” ETFs. In other words, an increase in the number of
new “alternative” ETFs buy signals can be a leading indicator of the early stages of a shift out of
global equity ETFs.

The Portfolio Thermostat monitors a group of about 50 ETFs called “Alternatives to Global Equities.” As
of the day of this writing, I can’t recall a time when the Alternatives Group looked as bad as it does now. For
example, the 20 year Treasury bond (TLT) is down about -4.8% over the last 9 trading days. In fact US Treasury bonds
are still trading below the highs that were registered all back in July of 2012. In addition, most commodities have
had significant declines, Agriculture (DBA) and U.S. Oil (USO) have both declined around -13% since June. Natural Gas
(UNG), Gold (GLD) and Uranium (URA) have declined around -23%, -11% and -24% respectively from their first and second
quarter highs.

Bottom Line:

Last week’s Bottom Line comment said to: “expect a short period of a sideways or declining market.”
Last week’s small decline was enough to work off the market’s short term overbought condition. The
weakness in “Alternatives to Global Equities” is another confirmation of the current Bull market in
stocks. The stocks stocks-only Advance Decline Line is close to its high which is reflective of the continued broad
breadth (high tide lifting most ships). Any further weakness, in the major equity indexes, should be shallow and
followed by new highs.

More About Tom Hardin

As Chief Investment Officer, Tom Hardin, Chartered Market Technician (CMT), makes all the final decisions on all
investment and portfolio management decisions for Canterbury Investment Management. Tom has more than 30 years
experience in the investment management industry and has broad breadth of knowledge. He is known as an innovator,
educator and been revolutionary in the advancements in portfolio and risk management.

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accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness
or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the
simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.